Ohio pension gets tough with Permira

The $50 billion Ohio Public Employees’ Retirement System has notified Permira that it has “concerns about future involvement” with the firm after its portfolio company, clothing label Hugo Boss, decided to shut down a plant in Ohio.

The plant’s employees, as well as local and state officials, allege the company did not “bargain in good faith” to keep the plant open. The plant, based in Brooklyn, Ohio, is set to close in April, putting about 400 jobs in jeopardy.

OPERS is demanding that Permira return to negotiations to find a way to keep the plant open. Workers United represents employees at the plant, and the union has vowed to contact public pensions in other states – including Pennsylvania, New Hampshire, Texas, California and Massachusetts – to ask them to re-evaluate investments in Permira.

Hugo Boss workers: protesting planned plant closure

“The OPERS board noted that the investment performance of Permira IV has underperformed our expectations and is inconsistent with the reputation of your institution,” OPERS chairman Ken Thomas and chief executive officer Chris DeRose said in a letter to Permira on 25 February. “Due to the poor performance of the fund and representations to the board that [Hugo Boss] did not bargain in good faith … the board now has concerns about future involvement with your institution.”

Permira said late Tuesday the firm is “sensitive to our investors' concerns and always have an open line of communication with them”, but declined to comment further. Hugo Boss said it has done everything possible to make the facility competitive, “and when that effort failed, we acted in the best interests of shareholders and customers by deciding to close the facility”.

The company said it has been working with public officials and a separate, maintenance workers union, to provide “fair severance packages and other traditional assistance to the workers”. The production workers union, Workers United, rejected the company's offer to engage in similar dialogue, the company said.

“The company has offered a significant and comprehensive package of severance and outplacement benefits at a cost of more than $1.5 million to this workforce, and one that exceeds any existing legal or contractual requirements,” the company said.

OPERS has invested €110 million with Permira, including €60 million in Permira IV, the fund that holds the Valentino Fashion Group investment. Valentino owns several brands, including Hugo Boss. Permira IV was originally €11.1 billion, but was reduced to more than €9 billion in 2009 after the firm allowed its limited partners to shrink commitments.

Permira IV had a -50 percent internal rate of return as of 31 March, 2009, according to documents from the California State Teachers’ Retirement System.

One of Ohio’s US Senators, Sherrod Brown, also expressed concern in a letter to Permira.

“I have grave concerns when hearing stories of private equity firms such as Permira loading their portfolio companies with debt, closing US production facilities, and reaping high returns – all at the expense of American workers,” Brown said. “Such behaviour has played a significant role in creating the challenging economic climate our nation currently faces. It is even more troublesome to hear that public and private pension programmes are entrusting funds to firms that engage in such behaviour.”